TECHNOLOGY; Apple's 4th-Quarter Profit More Than Doubled

By LAURIE J. FLYNN

Published: October 14, 2004

Apple Computer announced yesterday that its fourth-quarter profit more than doubled because of continued strong sales of iPod music players, beating Wall Street estimates by a wide margin despite a shortage of the semiconductors that are used in some of its computers.

The company, based in Cupertino, Calif., reported net income of $106 million, or 26 cents a share, for its fourth quarter ended Sept. 25. That compared with a profit of $44 million, or 12 cents a share, in last year's fourth quarter. Analysts had estimated profit of 18 cents a share on revenue of $2.15 billion.

''It was a great quarter,'' Steven P. Jobs said in an interview. ''We sold a lot of Macs and we sold a lot of iPods, and we managed our expenses very well.''

Mr. Jobs said it was Apple's highest fourth-quarter revenue in nine years. Revenue climbed 37 percent, to $2.35 billion, from $1.72 billion in the quarter a year ago.

Analysts said the fourth quarter offered a significant example of how Apple was transforming itself from a computer company into a digital music and entertainment company. In the quarter, the company sold more than two million iPods and 836,000 Macintosh computers.

''It's an entirely different company than it was just 15 months ago,'' said Charles R. Wolf, an analyst with Needham & Company. Apple holds a huge lead in portable digital music players, with 70 percent of the market. Revenue from iPods more than quadrupled, to $537 million, and accounted for 23 percent of total revenue.

Barry Jaruzelski, a vice president at Booz Allen Hamilton, said, ''The line between Apple being a computer company and a consumer electronics company is getting pretty fuzzy.''

The chief finance officer, Peter Oppenheimer, said Apple ended the fourth quarter with a backlog of orders for the iPod mini and the full-size iPod, which Apple refers to as the classic.

The company said it continued to suffer from an shortage of G5 microprocessors from I.B.M., the chips used in many of Apple's most powerful Macintoshes. The problem was first revealed at the end of last quarter, when Mr. Jobs described it as a ''speed bump'' and said he expected it to be resolved in the fourth quarter.

But the problem has persisted, and Apple executives concede that they do not know when I.B.M. will catch up. Mr. Jobs said Apple saw ''some light at the end of this quarter.''

The shortage, caused by problems in I.B.M.'s conversion to a more efficient manufacturing process, contributed to a 50 percent drop in sales of Apple's flat-screen iMac.

The company said the chip shortage had kept it from meeting demand for its most powerful G5-based PowerMac.

''It's impossible for me to tell how much revenue the constraints have cost us,'' Mr. Oppenheimer said. But he said he was pleased Apple was able to achieve a strong quarter despite the problem.

Mr. Wolf said the shortage of chips hurt Apple because the company had not been able to deliver its newest computer, the iMac G5, which offers an entirely new design. But, he said, the good news is that Apple's customers have shown a willingness to wait. The iPod, which has faced large back orders, serves as an example.

''Supply issues are for Apple a minor problem compared to demand issues,'' Mr. Wolf said. ''The supply constraints could be good news for the December quarter.''

In the fourth quarter, Apple's gross margin was 27 percent, up from 26.6 percent a year ago. International sales accounted for 37 percent of the quarter's revenue.

Sales in Apple's retail stores nearly doubled in the quarter, and the company is about to open a store in London, its first in Europe. Apple executives also said that sales of notebook computers led to the company's strongest sales in the education market in four years.

Chart/Photo: ''Double Platinum for iPod''
Apple Computer shipped more than two million portable digital music players during its fourth quarter, which ended in September.

Graph tracks iPod's Shipments and Revenue since the start of the year.
(Source by Company reports)